OTS outlines income tax and NI alignment plans

THE OTS is pushing for a debate around mitigating the ‘losers’ who will emerge from the closer alignment of NICs with income tax, releasing a seven-step strategy to reform national insurance contributions.

The Treasury group, which independently advises the government on how to simplify the tax system, has advised the chancellor to move NICs to an annual, cumulative and aggregate basis.

Other steps include basing employers NICs on whole payroll costs and renaming the charge, aligning the self-employed NICs more closely with the employees’ NICs, and improving transparency for the contributions and the contributory principle.

The OTS highlights that 7.1 million people will pay less NICs if alignment is pursued, but 6.3 million will pay increased contributions.

The report also includes summaries for over 600 responses that were received in response to the group’s surveys on income tax/NICs. Many employers who administer the current system expressed concerns over the administrative complexity of applying different sets of rules.

A number of accountancy institutes have given their opinions towards the OTS’ plans, with the ACCA stating that it “would not support” a merger of income tax and National Insurance if it is used as a tax-raising exercise.

“Alignment inevitably will result in gainers and losers for employees and employers and further work is required to drill down through the high level statistics to establish the true situation,” said OTS chair Angela Knight, who has called for an improvement in educating individuals as to what NICs are.

“Then there are 4.7 million self-employed individuals and, for those who pay NICs, aligning with income tax may well result in some paying more although they may receive a greater range of welfare benefits too.

“By highlighting the need for change and shining a light on the difficult areas now, the OTS intends not just to inform, but to use this review to commence a full and informed debate on what changes are necessary, how they could be made and the timetable, the challenges for ‘loser’ groups and how we can make change as seamless and as fruitful as possible,” continued the OTS chair.

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